Egyptian President Anwar Sadat met for 70 minutes yeaterday with Assistant Secretary Alfred Atherton, and a senior U.S. source later stressed that no dramatic breakthrough should be expected from Sadat's visit to Washington.

The source said Isreal and Egypt are still far apart on a declaration of principles for a Middle East peace settlement, and that it could take several more weeks before they agree on a compromise.

The two countries, the source said, remain at odds over Isreali withdrawal from occupied Arab land and the future of the Palestinians. And, he added, a great deal of "fundamental discussion" is still required on the Palestinian question.

Egyptian sources emphasized yesterday that progress on these key issues depends on Sadat's talks this weekend at Camp David with President Carter. U.S. sources, however, were equally emphatic in trying to put a damper on expectations of any dramatic outcome.

Atherton, the senior source said, expects to return to the Middle East following Sadat's visit to resume his efforts to bring Egypt and Isreal together on a declaration of principles.

Even success in getting the two sides to agree on a declaration, the source added, would only be another step down the road toward a Middle East peace.

While prospects for peace appeared better today than before Sadat's historic visit last November to Jerusalem, the source said, there will probably be many difficult periods in the months ahead.

Atherton, who has spent the past 12 days in the Middle East, yesterday brought Sadat an American draft of proposed principles, along with a number of "new ideas" that had been suggested by Israel.

Egypt quickly made it clear, however, that it was notready to accept the latest Israeli proposals.

"After seeing the written ideas from Israel brought by Atherton, we can still say the gap is quite wide," an Egyptian Foreign Ministry official said.

While Atherton refused to comment on his meeting with Sadat, he said that during his talks in Cairo, he had been given "some of the Egyptian government's ideas on the draft declaration of principles.

"We will be reflecting on this to see where we go from here," he declared.

Earlier in the day, Israeli and Egyptian negotiators wound up their current round of military talks in Cairo, and adjourned to await the out-come of the Sadat-Carter summit.

A terse communique announcing the suspension of the Cairo talks gave no hint that any progress had been in resolving the key question of the future of Israeli settlements in the Sinai.

Israeli Defense Minister Ezer Weisman and members of his delegation planned to fly back to Jerusalem today, and it appeared unlikely that the Cairo talks would be resumed at least until after Sadat completes his U.S. visit and sunsequent week-long European tour.

Sadat is scheduled to leave for the United States today, stopping overnight in Morocco for talks with King Hassan, who has been the staunchest Arab backer of his peace initiative.

The Egyptian leader will then fly on to Washington Friday, arriving at Andrews Air Force Base at 3 p.m.

Sadat's U.S. trip is viewed by many observers as a return to media diplomacy, with the Egyptian leader expected to make a major during his six-day stay to rally American public opinion.

The Egyptian leader is also expected to press Carter to bring pressure on the Israelis to accept a declaration of principles along the lines suggested by Carter in Aswan on Jan. 4.

Carter said a Middle East settlement should be based on establishing normal relations between Israel and the Arab states, withdrawal by Israel to 1967 boundaries, and a role for the Palestinians in determining their future.

"If we go by these three points, we can start negotiating seriously," an Egyptian official said.

Little information was available yesterday on what progress - if any - was made in the two days of military talks between Weizman and Egyptian War Minister Mohammed Gamasy.

The communique issued at the conclusion of the military talks simply said:

"The Egyptian-Israeli military committee has completed its second round of discussions in Cairo this evening. The discussions revolved on the main problems on the agenda of the military committee. The date of the next meeting will be coordinated by direct contacts between the two parties."

The atmosphere surrounding the military talks struck many observers as being similar to when the initial Cairo talks sputtered to a halt in December.

At that point, negotiators paused to await the outcome of a visit by Israeli Prime Minister Menachem Begin to the United States. Once again, with the attention of both sides focusing on Washington, the mood in Cairo seems to be one of suspenseful waiting.